Forms of Business Organization: Partnerships and Corporations PDF

Forms of Business Organization 1. Sole Proprietorship – it is a form of business ownership wherein the owner is in command of his whole business and stands to lose as much as he puts in; even more to the extent of all his personal holdings. 2. Partnership – two or more persons bind themselves to co...

Forms of Business Organization 1. Sole Proprietorship – it is a form of business ownership wherein the owner is in command of his whole business and stands to lose as much as he puts in; even more to the extent of all his personal holdings. 2. Partnership – two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. 3. Corporation – is an artificial being created by operation of law, having the right of succession and powers, attributes, and properties expressly authorized by law or incident to its existence. − Attributes of Corporation: It is an artificial being. It is created by operation of law. It has power of succession. It has the power, attributes, and properties expressly authorized by law or incident thereto. Forms of Partnership 1. General Partnership – it is the basic form of partnership in which all other partners manage the business and are personally liable for its debts. 2. Limited Partnership – in this form of partnership, certain limited partners relinquish their ability to manage the business in exchange for limited lability for the partnership's debts. 3. Limited Liability Partnership – in this form of partnership, all partners have some degree of limited liability. Types of Partners 1. General Partners – they have an obligation of strict liability to third parties injured by the partnership. 2. Limited Partners – the liability of limited partners is limited to their investment in the partnership. 3. Silent Partnership – partners who usually provide capital to the business. Nature of Partnership – partnership is fiduciary in character. − It means that all partners must have trust and confidence in one another. Delectus Personae – in partnership, a person has the right to choose the person or persons he wants to become his partner/s.  Essential Elements of Partnership 1. Valid and Voluntary Contract to become Partners. − The persons forming the partnership must be capacitated to enter into a contractual relationship. 2. Contributions of money, property or industry to the common fund to be used exclusively for the common interest to benefit the partnership. 3. It must be an association for profit, with the intention of dividing the profits among themselves. 4. The partners must be mutual agents of each other. − As an agent of his co-partners, a partner can enter into a contract and bind the partnership, provided he is acting within the scope of his authority and for the best interest of the partnership. 5. Lawful purpose. 6. Articles of partnership must not be kept secret. 7. Juridical personality, separate and distinct from the individual personality of each partner. − This is acquired by the partnership once it is legally established. ACT 1772 – every contract of partnership, having a capital of Php 3,000 or more in money or property, shall appear in public instrument, which must be recorded in the office of SEC. May 1, 1980 – Batas Pambansa Bilang 68 Corporation Code of the Philippines was signed. Advantages of a Corporate Form of Business 1. Strong Legal Personality – the corporation has a legal capacity to act and contract as a distinct unit in its own name. − It has continuity of existence. 2. Limited Liability to Investors – an Investor's liability is limited to the amount of the investment. − This feature flows from the legal theory that a corporate entity is separate and distinct from its stockholders. 3. Free Transferability of Units of Investment – shares of stocks can be transferred without the consent of other stockholders, assuring a ready mechanism to dispose of investments when the member's personal or financial situation may require it. 4. Centralized Management – is centralized in the Board of Directors. − Shareholders are not agents of the corporation, nor can they bind the corporation. Advantages of a Corporation Over Unregistered Associations ✓ It enjoys perpetual succession under its corporate name and artificial form. ✓ It has the capacity to take and grant a property and contract obligations. ✓ It can sue and be sued in its corporate name as a juridical person. ✓ It has the capacity to receive and enjoy common grants of privileges and immunities. ✓ Its stockholders or members generally have no personal liability beyond the value of their shares. Disadvantages of Corporate Form ❖ Complicated and costly formation and maintenance. ❖ Lack of personal element. ❖ Abuse of corporate management. ❖ Limited liability hits innocent victims. ❖ Double taxation Distinction between Corporation and Partnership as to Legal Capacity 1. Corporation – has a stronger legal personality, enabling it to continue despite the death, insolvency or withdrawal of any of its stockholders or members. 2. Partnership – in partnership, the withdrawal, death or insolvency of any of the partners would automatically bring about the dissolution of the partnership. 3. Limited Liability – is the main feature in a corporate setting whereas partners are liable personally for partnership debts not only to what they have invested in the partnership but even as to the other properties. − Generally, every partner is an agent of the partnership, and by his sole act, he can bind the partnership. Nationality of Corporation 1. Place of Incorporation Test – principal doctrine on the test of the nationality of a corporation in the Philippines. − It adheres to the belief that a corporation is a nationality test of the country under whose laws it has been organized and registered. 2. Control Test – adheres that nationality of the corporation is determined by the nationality of the majority of the stockholders on whom the control is vested.  Classifications of Corporation in Relation to the State 1. Public Corporations – are those formed or organized for the government of a portion of the state. − Example: GSIS, PAGCOR, Municipality to government function. 2. Private Corporations – are those formed for some private purpose, benefit or an end. − Example: ABS CBN Corporation, Jollibee Food Corp. San Miguel Corp. 3. Quasi-Public Corporation – is a cross between private corporations and public corporations. − Example: School districts, water districts, PLDT. 4. Domestic Corporation – is this kind of corporation obtained personality through incorporation under the Philippine laws. 5. Foreign Corporation – is licensed by SEC to do business in the Philippines under the principle of RECIPROCITY, after securing a certificate of authority from the Board of Investment under EO 226 or the Omnibus Election Code and after complying with the conditions for issuance of the license or application forms, structural organizations and capitalization. Classifications of Corporation as to the Place of Incorporation ✓ To place them on equality with domestic corporations. ✓ To subject them to inspection so that their condition may be known. ✓ To protect the residence of the state doing business with them by subjecting them to the courts of the state. Classifications of Corporation as to Stock 1. Stock Corporation – private corporations which have capital stock divided into shares and the stockholders are entitled to their shares of dividends or allotment of the corporate surplus profits based on their stockholdings or subscriptions. 2. Non-Stock Corporation – these are corporations which do not issue stocks that are composed of members, not stockholders. − They may be civic, charitable, religious or professional organizations.  Other Kinds of Corporation 1. De Jure Corporation – those who have complied with the requirements of the law. 2. De Facto Corporation – those who failed to comply with one or two illegal requirements of the law. 3. Corporation Sole – it is composed of one member or corporator and generally applies to religious denominations. 4. Close Corporation – this is usually owned and managed by a family. − All the outstanding stocks are owned and managed by a family; stocks are not open for public subscription. 5. Open Corporation – all the members or corporations exercise their right to vote to elect the directors and other officers of the corporation; the stocks are open for public subscription. 6. Eleemosynary Corporation – this corporation is established for charitable purposes. 7. Ecclesiastical Corporation – this corporation is established for religious purposes. 8. Lay Corporation – this corporation is established for any purpose other than religion. 9. Corporation Aggregate – this is composed one member or corporator. 10. Corporation by Estoppel – a kind of corporation which has five or more persons, who assume to act as a corporation, in this case all the persons involved will be liable as general partners. 11. Multinational Corporation – a corporation which is organized in one state or country but extends its corporate business in other territories or countries. Powers of Corporation 1. Expressed Power – if the corporation can perform functions as stipulated in the By Laws, Corporation Code and such other statutes stipulates pertinent to the corporation. 2. Implied Power – the power is inherently necessary in the exercise of its corporate function in the pursuit of its corporate existence.  Different Corporation Doctrines 1. The Doctrine of Piercing the Veil of Corporate Assistance – − Corporate Entity is used to commit fraud or to justify wrong, or to defend crime. − It defeats public convenience, or a mere farce. − When the piercing of the corporate fiction is necessary to achieve justice or equity. 2. Doctrine of Business Opportunity – this doctrine refers to the case when a director/officer of the corporation is presented with a business venture which can be profitably handled by the corporation. 3. Trust Fund Doctrine – when the directors of the solvent or insolvent corporation distribute all corporate assets to the stockholders without reserving any assets for payment of corporate debts and liabilities. Distinction Between Corporators and Incorporators 1. Corporators – these are the total number of persons who compose the corporation after its formation which include the incorporators, the stockholders and/or members. 2. Incorporators – these are the original founder organizers of the corporation, stock or non-stock. − They must be natural persons. − A juridical person cannot be an incorporator. − The law provides that the incorporators must be at least five (5) but not more than (15).